Washington Federal Beats on Earnings & Rev


Washington Federal Inc.’s (WAFD) fiscal third-quarter 2013 earnings (ended Jun 30) came in at 36 cents per share. This compares favorably with the Zacks Consensus Estimate as well as the year-ago earnings of 33 cents.

Better-than-expected results were driven by a rise in other income, partially offset by a fall in net interest income and higher operating expenses. Moreover, improvement in asset quality and enhanced capital ratios were the tailwinds for the quarter.

Washington Federal’s net income in the fiscal third quarter surged 6.2% to $37.3 million from $35.2 million in the prior-year quarter.

Quarter in Detail

Washington Federal’s total revenue came in at $133.2 million, declining 10.6% from $149.0 million in the prior-year quarter. However, total revenue surpassed the Zacks Consensus Estimate of $97.0 million.

Net interest income (:NII) fell 1.9% year over year to $94.7 million. However, net interest margin (NIM) increased 10 basis points from the prior-year quarter to 3.15%. The rise in NIM was mainly due to slower repayments on mortgage backed securities, partially offset by reduced asset yields on newly originated assets. Similarly, other income surged 40.9% year over year to $5.1 million.

Operating expenses increased 15.7% from the year-ago quarter to $41.6 million. The rise primarily resulted from higher compensation and benefits expenses, occupancy costs and other costs, partially mitigated by lower Federal Deposit Insurance Corporation (:FDIC) premiums.

Credit Quality

During the reported quarter, credit quality continued to improve with Washington Federal reporting no provision for loan losses compared with $10.4 million in the prior-year quarter. Likewise, net loan charge-offs came in at $5 million, plunging 68.8% from the year-ago period.

As of Jun 30, 2013, total loan delinquencies were 2.27% of total loans as against 2.57% as of Sep 30, 2012. Similarly, nonperforming assets totaled $233 million or 1.79% of total assets as of Jun 30, 2013, falling 14.5% from the Sep 30, 2012 level.

Profitability Metrics

Washington Federal’s profitability metrics continued to rise. As of Jun 30, 2013, return on average common equity (:ROE) was 7.73% compared with 7.33% in the prior-year quarter. Return on assets (:ROA) was 1.15% as compared with 1.04% in the year-ago period.

Share Repurchase Update

Washington Federal repurchased 2.0 million shares at an average price of $16.91 per share in the reported quarter. As of Jun 30, 2013, the company has an authorization to buyback up to 1.0 million shares.

Our Viewpoint

Presently, Washington Federal continues to benefit from lower interest rates. However, the anticipated rise in interest rates is expected to hurt the company’s deposit re-pricing efforts in the near term. Moreover, extensive capital deployment activities along with the acquisitions will boost shareholders’ confidence in the stock.

Though Washington Federal is optimistic about the uptrend in the economy, we remain concerned about the company’s sizeable exposure to real estate markets, where pricing remains soft.

Washington Federal currently carries a Zacks Rank #2 (Buy).

Among other companies in the same industry, First Defiance Financial Corp. (FDEF) is scheduled to report second-quarter 2013 earnings on Jul 22, Flagstar Bancorp Inc. (FBC) on Jul 23, and Sterling Financial Corporation (STSA) on Jul 25.

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Read the Full Research Report on WAFD

Read the Full Research Report on STSA

Read the Full Research Report on FDEF

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